Moody’s Investors Service affirmed South Africa’s investment-grade credit rating, citing the government’s commitment to fiscal discipline and plans to reduce labor disputes and boost development.
South Africa is rated Baa1, the third-lowest investment-grade level and on par with Mexico, Thailand and Russia. Moody’s maintained a negative outlook on the nation’s debt, citing concerns about the outlook for mining, South Africa’s biggest export earner, and increasing pressure on the government to raise spending before next year’s parliamentary elections.
Finance Minister Pravin Gordhan’s “renewed commitment to spending restraint” will stabilize government debt at levels comparable with similarly rated peers, Moody’s said in an e-mailed statement dated yesterday. “The spending ceiling is now a firmly entrenched anchor for fiscal policy.”
In his February budget speech, Gordhan pledged to cut spending to reduce the budget shortfall, estimated at 4.6 percent of gross domestic product for the year through March. Moody’s, Standard & Poor’s and Fitch Ratings have downgraded the nation’s debt since September, concerned by a slowing economy and rising spending pressures. Moody’s and S&P have a negative outlook on the rating, indicating they may lower it further.
The “government has taken proactive measures to address all the key concerns raised by Moody’s and remains committed to implement these measures,” the National Treasury said in an e-mailed statement after the Moody’s decision. The government is “confident that the various measures that are being implemented will in time contribute to improved ratings for South Africa,” it said.
The government’s adoption of the National Development Plan, which seeks to reduce poverty and inequality, and the ruling African National Congress’ rejection of calls to nationalize mines supported South Africa’s rating, Moody’s said. A framework agreement between government, labor unions and mining companies may reduce labor disputes in the industry and lead to more investment and growth, it added.
The rand dropped 0.1 percent to 9.8385 per dollar at 10:35 a.m. in Johannesburg, extending the loss this year to 14 percent.